Three Certainties in Uncertain Times

Annie AcMoody, Economist Western United Dairies

Anxiety, stress, uncertainty. Confidence, defiance, invincibility. It’s a tale of many conflicted Americans, but no matter which side you fall under, the market has been struck by the former with such force that very few things have been able to lift it back up. The $2 trillion package enacted Mar. 27 was one of them. Will it prevent the US from slipping into recession? At the rate things are closing with social distancing becomes a regular phrase of our daily vocabulary, it seems unlikely.

Although the package and more will help, the economic outlook, no matter how you slice it, is rough. Unemployment is sky rocketing. Habits are changing. How long will it be before people are comfortable going to the movies, a concert, or eating in crowded restaurants again? Whether a handshake becomes jazz hands; whether the cruise ship industry becomes a thing of the past; whether airlines must cram fewer people on flights in the future; there is one thing that will not change. People have to eat.

When this is all said and done and life resumes to its new normal – whatever that looks like – the critical infrastructure will remain. And that means agriculture. That means you, and what you do every day to feed America. The road there will be bumpy. The decline in restaurant sales will cause dramatic losses in dairy purchasing. According to USDA’s Economic Research Service, Americans spend 50% of their food budget on eating out. That’s a concerning figure to look at. Looking a bit closer into the data though, you can see that closer to a third of Americans’ calories are consumed eating at home. Cutting out restaurant purchases will leave them with a slightly higher disposable income for grocery purchases or other economic activity.

The increase in purchasing food for home has already been significant, with gains over 30% year-over-year in many categories. Savings from not eating out are now being spent at the grocery store, and admittedly also into stock piling. Consumers are reconnecting with comfort food at home, and shelves of butter, cheese, yogurt, beef, frozen pizza and milk are running low or empty at many locations. Maybe this will bring some perspective. During all this, the words of Joaquin Phoenix at the Oscars are long forgotten by most consumers.

Sure, the increased stockpiling will likely ease a bit in the next few weeks once people understand food will be there and grocery stores are still open. But not all dairy is convenient for long term storage. And consumers will go back to the store for more. Pizza places are also well positioned to maintain sales, with Dominos reporting they were hiring 10,000 workers and Pizza Hut three times

that to keep up with delivery demands. Papa Johns is also pulling many food industry workers and Papa Murphy’s is adjusting with touch-less pickups. California is the number one producer of mozzarella in the U.S., producing over a third of the nation’s share. March Madness may have taken on a literal meaning these days, but the lack of sports on TV did not entirely crush America’s spirit, and family pizza night seems alive and well.

Kids drink a lot of milk through the school lunch program – 1.2 million half pints last year, to be specific. No school could mean no milk for many, but communities and school districts all over the country have come together to continue deliveries of school lunches for kids in need. In many areas, it’s a no questions asked policy to receive a free meal. No school will no doubt curtail milk demand through that channel, but emergency continuation of the program in most areas will mitigate the impact.

International trade will suffer, there’s no doubt. This is a global issue and demand everywhere is being impacted. Borders are closed for travelers, but not yet to many goods – when logistics allow them to move. For the U.S. dairy industry, we stand to feel the hit of that impact if consumers don’t pick up the slack. With 15 percent of US milk production going outside our borders, that’s a lot of cows out of a job if demand doesn’t keep up. Imports represent about four percent of US milk.

January was the best month for exports in the last five years, so this pandemic will likely be a slap in the face of February and March data after such a victorious start to the year. But as issues ease in parts of Asia, demand may slowly recover. It will be key for the U.S. to maintain the trade relationships that had started earlier in the year.

Sacramento has a lot more fish to fry these days than dreaming up new regulations for dairy. And maybe – maybe – they will realize the importance of local agriculture in the face of a crisis and weigh the economic impact of regulations more carefully in the future. With significantly fewer cars on the road, the same number of cows, and better air quality, maybe some research will come out pointing fingers in a different direction. Maybe in a few months, Steve will be arguing with his neighbor at the local coffee shop where a temperature check and hand sanitizers may be mandatory. Maybe Karen will have so much pent up desire for living that she will spend much more than she did before the crisis.

There are a lot of maybes. But if anything, I would bet three certainties remain: the next few weeks will bring wild and unpleasant price volatility, major supply chain adjustments, and highlight the importance of domestic agriculture in the face of a national crisis.

This column appears in the Mar 26 edition of the e-newsletter published by Western United Dairies, Modesto, Calif. It is used here with permission.

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